from the lawsuit-by-public-opinion-poll dept

Last week we wrote about how prosecutors in Indiana were threatening to file criminal charges against Redbox execs unless the company agreed to remove R-rated movies from its kiosks. The whole thing was instigated by brick-and-mortar video stores who didn't like competing with Redbox's $1 video rentals. However, as news spread about this threat, it seems that the residents of that county raised their voices and let the prosecutor know they wanted to keep their Redbox and its R-rated movies. The prosecutor noted that the standard for whether this was a problem was "community standards," and the community made it loud and clear to him that they wanted the Redbox kiosks to stay:

"It's not an exact barometer -- I didn't take a poll -- but it just seemed pretty clear to me that the community would not be behind the prosecution of this," Stan Levco said during Friday's news conference.

While it's good that he's backed down, I'm still not sure which is more troubling, that he initiated the threats at the behest of competitors, or that public outcry alone was enough to get him to back down.

from the let-me-introduce-you-to-the-constitution dept

Brandon alerts us to the news that an Indiana prosecutor is threatening to bring criminal charges against Redbox execs if they don't remove R-rated videos from the kiosks. The claim, of course, is that this makes it easier for those under 17 to access those movies. Of course, that doesn't explain what's actually criminal about it. Indiana is among the handful of states that should know this -- seeing as politicians there tried to pass a law stopping retailers from selling "mature" video games to kids -- but every law of that nature has been thrown out. The current movie rating system is not, in fact, enforced by the government as that would be a restriction on free speech. Instead, it's a voluntary agreement within the movie industry. In other words, there is no legal issue with these kiosks.

And, of course, the true story behind this threat is found early on in the article. It has nothing to do with "protecting the children" at all. Instead, this is a bunch of independent video rental stores trying to shut down the competition:

"I'm not on a crusade," said Paul Black, an Evansville attorney who says he suggested the inquiry to Levco's office on behalf of a client who operates several video store locations. "We're just looking for a level playing field here."

That's not leveling the playing field. It's trying to block competition -- and doing so with bogus charges of criminal behavior.

The whole thing makes no sense at all. Warner Bros. mistakenly thinks that if people can't rent a particular DVD in the first four weeks of release, they're more likely to shell out money to actually buy the DVD. This is Warner Bros. pretending that it can influence customer behavior by denying them what they want. That's a strategy that has never worked well. What this means is that at the moment when Warner Bros. actually puts some marketing effort behind the DVD release, that movie will not be available from the most popular rental options. And, the bizarre reasoning put forth by Netflix that this would benefit customers by improving inventory and availability of movies is not seen in reality. So rather than pissing off some customers because a movie is not available, you're now pissing off all customers by making the movie not be available on purpose, and then effectively massively increasing the amount of time they have to wait to see the movie? Does no one at Warner realize that a lot of those "customers" will simply decide to go see other movies or to download an unauthorized copy instead?

from the how-nice-of-them dept

We've described how some film studios are in a huge legal fight with Redbox over DVD rentals. While some studios have come to their senses and are happy to work with Redbox, others have been trying to pressure the company into giving it a cut of rental revenue and/or delaying when it rents newly-released movies. Those studios convinced the big distribution wholesalers to stop selling to Redbox (which seems like a pretty clear restraint of trade or antitrust issue), and in at least one case had convinced retailers not to sell to Redbox. Of course, there are ways around that as well, and we even suggested that Redbox could crowdsource its movie purchasing.

In fact, to get around the studio blocks, Redbox was apparently already purchasing 40% of its DVDs at retail locations like Target and Wal-Mart. But both retailers are now making that more difficult. They've put in place limits directly targeted at Redbox, saying they won't sell more than five DVDs at any one time to any buyer. Yes, here we have a customer willing to buy an awful lot of product -- at full retail price -- and these retailers won't let them? While they claim it's to make sure movies are available for other customers, given the earlier reports of studios specifically asking retailers to block Redbox from buying, it makes you wonder. What sort of company would tell willing customers they can't buy a product that is available and in stock?

Still, in the end I doubt those limits will be very effective. Redbox still could go with that crowdsourced concept, and get its subscribers to purchase five DVDs at a time in exchange for free rentals. Eventually, the industry is going to have to realize that fighting Redbox is a mistake.

from the it'll-destroy-Hollywood-even-more! dept

So Hollywood is all concerned that Redbox DVD rentals at $1 per day are going to do serious damage to the Hollywood economy -- except, of course, that the actual numbers say exactly the opposite. Still, if they're all freaked out (and some are in court) over $1/day rentals, you'd have to imagine they're not particularly pleased about rentals that could be even cheaper. Rose M. Welch points us to the news of a new DVD rental kiosk operation, called Big Box DVD, which is moving forward with a business model of charging a whopping 6 cents per hour for a new release (4 cents per hour for an older release). For folks willing to just rent the video, take it home, watch it and return it, that can be quite cheap. Of course, if you keep it for a full 24 hours, it'll be a bit over a dollar. How long until we hear about how much damage this is doing to Hollywood?

from the not-what-they-said... dept

We've already been covering Redbox's legal fight with a few movie studios who so hate the idea that Redbox is actually giving people something they want (legally) at a reasonable price (legally), that they want to kill it. The whole thing is so ridiculous that it's difficult to believe there's anyone out there defending the anti-Redbox studios' position (and, in fact, a couple of the other studios, with Paramount in the lead, have realized that it's smarter to partner with Redbox than to try to kill it). Yet, the Los Angeles Economic Development Corporation (a non-profit with LA government connections) has put out a report claiming that Redbox kills jobs and harms the economy throughout Los Angeles (thanks to reader Valkor for sending this in). If you want, you can read the full report (pdf) -- but prepare to be amazed as what the report actually says is quite different than the press release headline.

Hidden within the report are claims that the industry will continue to grow nicely for the next decade and that alternative business models will develop that more than compensate for any loss of revenue from reduced rental prices. But that's not what the headline of the press release says. No, it reads:

Study says low-cost DVD rentals could lead to $1 billion, 9,280 jobs lost

But, deep in the actual report? Why, it says the following:

The shift to digital delivery will provide new revenue streams for the industry and new opportunities... Increased availability of all types of digital content and media have changed lifestyles and will continue to contribute to demand for video products. Indeed, SNL Kagan forecasts continuing growth in overall industry revenues as alternative streams compensate for this loss of revenue. In total, SNL Kagan projects an increase in distributor revenues from all sources worldwide from $51.3 billion in 2008 to $67.6 billion in 2017. While the composition of these revenues will clearly change, distributors will continue to experience revenue growth into the next decade.

So how does it get from that to the headline? Well, it assumes that Redbox is decreasing revenue from traditional rental, and seems to assume that these other alternative revenue streams are not influenced by Redbox or other forms of distribution that are more convenient and cheaper and attract a new or different audience -- which seems like a dubious assumption. Another way of looking at this: it's as if the horse and buggy industry put out a report just as automobiles were coming to market that said, yes, the auto industry will be huge and will create millions of new jobs, but because a much smaller number of jobs are lost due to downsizing the carriage market, we can release a report saying that the auto industry is "killing jobs." Logically, that's ridiculous.

On top of that, it makes some odd assumptions throughout the report, continually throwing out the idea that Redbox itself might increase the revenue for the industry, repeatedly suggesting that the industry is mature and if there were a way to get more revenue out of it, it would have already been discovered. Of course, considering that the market has long been dominated by a single player, not prone to innovating, and with close ties to studios that have limited some of how it could act -- that assumption is highly suspect. In fact, the very reason that Redbox has been so popular (and which also explains the rise of Netflix) has been consumer dissatisfaction with the old Blockbuster model, which was designed to squeeze consumers.

To the authors' credit, they do try to be fair on other numbers and assumptions, recognizing that effects go in multiple directions and that there are other issues at play, but the press release headline claiming that Redbox costs the industry a billion dollars and nearly 10,000 jobs, when the actual report claims that revenue is increasing and will continue to do so, just seems hard to swallow. Unfortunately, every single press report covering this study seems to only take the PR headline from the report and repeat it, without anyone appearing to have read the part of the report that says the exact opposite of what the headline claims.

from the connecting-with-fans dept

Last week, we wrote about the legal battle Redbox is facing with some of the movie studios. Redbox, of course, rents DVDs at a $1/rental from vending machines that it places all over the place. Some of the studios are upset that (a) they don't get a cut of each rental and (b) that Redbox also sells those DVDs. So they've been trying to force Redbox to sign agreements that would give them a royalty cut and which would put limitations on Redbox -- such as not renting out videos until well after the DVDs are released and also having the company destroy, rather than sell DVDs when they were done renting them. Of course, the labels don't have much of a legal claim here. Redbox has every right to buy DVDs and to then rent them (right of first sale and all that). But, what at least some of the studios have done is to demand that DVD wholesalers not sell to Redbox, which certainly seems like a typical restraint of trade situation. In at least one case, a studio has also told downstream retailers, like Walmart and Best Buy not to sell to Redbox either.

Now, you might think that Redbox could just send employees into those stores without saying where they're from, but those stores probably don't carry enough stock for Redbox to buy enough DVDs efficiently. But what if they did something different? In the comments to that post last week, our rather insightful community started suggesting ways that Redbox could get around the sales blocks from studios by crowdsourcing the acquisition of movies.

There were a few different suggestions on how this could work, but the basic idea, presented by commenter "McBeese" laid out the basics:

Consumers open online accounts with Redbox. The account contains a Paypal id for deposits.

Redbox publishes how many copies of each DVD that they want.

Joe Consumer buys the movie, watches it, and then logs in to the Redbox site and 'pledges' the DVD. Each pledge automatically reduces the amount of a particular DVD that redbox is seeking.

Joe consumer mails in the DVD with an associated pledge number. When the DVD is received, the agreed amount is deposited into Joe Consumer's account.

A little slower than buying in bulk, but unstoppable.

I'd argue that rather than paying the user for it, Redbox could just credit their account for a certain number of free rentals. Then, not only does Redbox get these movies, but it builds up an even more loyal userbase... with really no significant way for the studios to block this out. There are some things that are tricky about this -- including verifying that the purchased DVDs are what they say they are, and coming up with a way to accurately handle the inventory management, but it is creative, and it shows that as much as the studios want to think they can control this market, there's always going to be some way around their restrictions.

from the is-it-an-antitrust-issue-or-not? dept

Law.com has a nice article detailing the legal issues involved in the battles between Redbox and the various movie studios. The main question is whether or not it's an antitrust violation on the part of the studios to block distributors, wholesalers and retailers from selling DVDs to Redbox. The studios want (a) a revenue share from Redbox (b) Redbox not to offer new release DVD movies for rental and (c) Redbox not to sell used DVDs. The reasons are pretty obvious: Redbox is a much more competitive offering. Since it's a lot less labor intensive, it's able to offer the DVDs for much less (both rental and sale), and the movie studios are freaking out, because in their minds, their old revenue streams should never be allowed to decrease.

The statements from the studios on the dispute is incredibly disingenuous:

"The real complaint is Fox won't sell DVDs to Redbox on the terms Redbox demands, and that is not in our view an antitrust violation," said Watson, an antitrust expert who has teamed with Yosef Riemer, a litigation partner in Kirkland & Ellis' New York office, in representing Fox, part of News Corp.'s Fox Filmed Entertainment. "There's nothing in the law, antitrust or otherwise, that says a seller must sell its product at the price that the buyer demands on the date the buyer demands and through the distribution channel that the buyer demands."

Indeed, Watson is correct that no seller needs to offer the product at the price the buyer demands, but that's not what's being disputed here at all. Clearly, prior to Fox and some of the other studios throwing their hissy fit, the distributors had no problem selling DVDs to Redbox at the prices Redbox thought were reasonable. The studios sold the movies to the distributors at the usual price, and the distributors sold them to Redbox at the usual price. Everyone should be happy.

But... what happened now is that these studios (Fox, Universal and Warner Bros.) told not just the distributors (Ingram and Video Product Distribution) but also retailers like Best Buy and Wal-Mart to not sell to Redbox. That's restraint of trade. The studios have every right not to sell videos to whomever they want -- but those distributors and retailers can then sell to whomever they want. The studios should have no say in the downstream sales of the videos once they've been sold to the distributor, wholesaler or retailer. That's where the antitrust issue is. The studios are successfully controlling downstream sales.

The studios are either being disingenuous or are just playing dumb when they claim that there's no antitrust violation because end users can still rent movies from Blockbuster or Netflix. But, that's defining the wrong "user" for the market in question. The market is in being able to buy from the distributor/wholesaler, and the "customer" is a retailer like Redbox. And these studios have stopped that customer from being able to make a perfectly legitimate purchase. That's the antitrust issue, and it's amazing that the studios think anyone will believe their false market definition or this bizarre claim that this about Redbox demanding some special price. It's not. Hopefully the judge recognizes that and doesn't fall for the studios simply making stuff up.

from the can-you-say-moral-panic? dept

It's well known how the MPAA tried to kill of the VCR (well, Betamax, originally), with Jack Valenti declaring: "The VCR is to the American film producer and the American public as the Boston Strangler is to the woman alone." As William Patry's new book details, Valenti and the MPAA have been masters of creating moral panics -- bogus, hyped up threats to make legislative response seem not just palatable, but desired -- that do nothing more than try to protect an old, decaying business model from innovative competition. Given that history, it's worth pointing out that it appears to be happening again with Redbox, the DVD vending machine business, that's taken the video rental market by storm. We've covered this story since last fall, when NBC Universal tried to figure out a way to stop Redbox from renting its movies. It gave Redbox a long list of ridiculous ultimatums, and told distributors not to sell to Redbox. In return, Redbox sued Universal. Since then, 20th Century Fox and then Warner Bros. joined in. Sony and Paramount are the only studios enlightened enough to do deals with Redbox.

But, that hasn't prevented the moral panic lobbying/promotional campaign from gearing up -- though, at least some appear a bit skeptical about it. The NY Times has an article that goes through the details and notes that Hollywood lobbyists have been working over time to convince the press to complain that Redbox rents R-rated movies to children. And they're also trying out some ridiculous claim about how Redbox is going to put studio plumbers out of work. Seriously. But, just you wait and see. It won't be long until articles start appearing claiming that Redbox kiosks are a threat to our children, since they can rent R-rated movies (the fact that these same kids can access whatever websites they want in the privacy of their own homes, with content much more graphic than any R-rated movie probably won't be mentioned).

But, of course, that's purely a moral panic -- and one that Patry even predicted in his book. What Hollywood and its lawyers are really worried about is that they don't get the same monopoly rents on pricing of DVDs. Once Hollywood got over its totally bogus fear of the VCR, it eventually embraced the idea of "windows." It's basically an attempt to do what economists call differential pricing -- where different people pay different amounts for the same basic product (or perhaps in slightly different forms). Classic differential pricing is a good thing in economics, if done right, because you can actually better optimize the market -- selling expensive (high margin) goods to those who will buy them, but making additional money on lower priced/lower margin goods to those further downstream, thus (in theory) maximizing profit.

Hollywood's version is a bit mucked up, of course, because it often will seek to abuse its monopoly position to squeeze excess rents out of the market with the government helping it -- and thus it freaks out when any sort of innovation (the internet, rental kiosks) come along. The real fear is that by introducing $1 rentals as soon as the DVD is released, it will cut into DVD sales (why buy at all when it's so cheap to rent?) and rentals from places like Blockbuster, who have worked out revenue sharing deals with the studios. So, once again, rather than compete in the market, Hollywood's lawyers are trying to convince the press and politicians that Redbox DVDs are "a threat to your children." But this is the exact same sort of "folk devil" that Patry describes Hollywood trumping up with every kind of technological innovation. Hopefully, we're smart enough not to fall for it this time.

from the shooting-the-foot dept

Hollywood really never learns, does it? Following 20th Century Fox's decision to try to stop Redbox from getting movies to rent via its kiosks (to which Redbox has responded by suing Fox), Warner Bros. has joined in as well, but isn't just trying to stop Redbox, but Netflix, too. It wants to force both companies not to rent DVDs until a month after the DVDs are actually released... unless the companies agree to share revenue from the rentals.

There's basically no legal basis for this move, which would only serve to piss off consumers (yet again). These companies are free to buy the DVDs and rent them out, but the studios want a cut of every rental. It's sort of like video game makes demanding a cut of every used game sale, or an artist demanding a cut every time a piece of his artwork is sold. It's entitlement society all over again. Nothing should happen without the original company getting paid. What they don't realize is how this limits them. Netflix and Redbox become less interested in promoting Warner Bros.' movies, because they're now a lot more expensive to those companies. Instead, Hollywood is handing incentives over to these companies to promote other films that don't demand their tithe.